EY COVID 19 Estados Financieros

Applying IFRS
Accounting considerations
of the coronavirus
outbreak
Updated March 2020
Contents
1. Background ............................................................................. 2
2. Going concern ......................................................................... 3
3. Financial instruments ............................................................... 4
4. Impairment assessment .......................................................... 12
5. Government grants ................................................................ 14
6. Income taxes ......................................................................... 17
7. Liabilities from insurance contracts ......................................... 20
8. Leases .................................................................................. 22
9. Insurance recoveries .............................................................. 24
10. Onerous contract provisions.................................................. 27
11. Fair value measurement ....................................................... 28
12. Revenue recognition ............................................................ 30
13. Events after the reporting period ........................................... 32
14. Other financial statement disclosure requirements .................. 34
15. Other accounting estimates .................................................. 37
1 March 2020 IFRS accounting considerations of the coronavirus outbreak

1. Background
The threats posed by the coronavirus outbreak are not stopping. More
As the outbreak continues
countries have imposed travel bans on millions of people and more people in
to evolve, it is difficult,
more locations are placed with quarantine measures. Businesses are dealing
at this juncture, to with lost revenue and disrupted supply chains. The disruption to global supply
estimate the full extent chains due to factory shutdowns has already exposed the vulnerabilities of
and duration of the many organisations. The outbreak has also resulted in significant volatility in
business and economic the financial and commodities markets worldwide. There are already signs that
impact. Consequently, the virus has significantly impacted the world economy. Various governments
these circumstances have have announced measures to provide both financial and non-financial
presented entities with assistance to the disrupted industry sectors and the affected business
greater challenges when organisations.
preparing their interim and
In February, we issued Applying IFRS accounting considerations of Coronavirus
annual IFRS financial outbreak, which focuses on addressing the financial effects when preparing
statements. IFRS financial statements for the year ended 31 December 2019. The new
circumstances described above have presented entities with greater challenges
in preparing their IFRS financial statements.
This publication, therefore, provides a reminder of the existing accounting

requirements that should be considered when addressing the financial effects
of the coronavirus outbreak in the preparation of IFRS financial statements
for the annual or interim reporting periods ending in 2020. Disclosure
considerations for interim financial reporting are also covered in this
publication. The issues discussed are by no means exhaustive and their
applicability depends on the facts and circumstances of each entity. The
financial reporting issues, reminders and considerations highlighted in this
publication are the following:
• Going concern
• Financial instruments
• Assets impairment
• Government grants
• Income taxes
• Liabilities from insurance contracts
• Leases
• Insurance recoveries
• Onerous contract provisions
• Fair value measurement
• Revenue recognition
• Events after the reporting period
• Other financial statement disclosure requirements
• Other accounting estimates
March 2020 IFRS accounting considerations of the coronavirus outbreak 2

2. Going concern
IAS 1 Presentation of Financial Statements requires management, when
preparing financial statements, to make an assessment of an entity’s ability
to continue as a going concern, and whether the going concern assumption
is appropriate. Furthermore, disclosures are required when the going concern
basis is not used or when management is aware, in making their assessment, of
material uncertainties related to events or conditions that may cast significant
doubt upon the entity’s ability to continue as a going concern. Disclosure of
significant judgement is also required where the assessment of the existence of
The going concern a material uncertainty is a significant judgement.
assessment needs to In assessing whether the going concern assumption is appropriate, the standard
be performed up to requires that all available information about the future, which is at least, but not
the date on which the limited to, twelve months from the end of the reporting period, should be taken
financial statements into account. This assessment needs to be performed up to the date on which
are issued. the financial statements are issued. Refer to section 3 for further discussion on
the current vulnerability entities are facing due to concentration and liquidity
risks.
Measurement
Management is required to assess the entity’s ability to continue as a going
concern. When making that assessment, where relevant, management takes
into consideration the existing and anticipated effects of the outbreak on
the entity’s activities in its assessment of the appropriateness of the use of
the going concern basis. For example, when an entity has a history of profitable
operations and relies on external financing resources, but because of the
outbreak, its operations have been suspended before or after the reporting
date, management would need to consider a wide range of factors relating to
the current adverse situation including, expected impact on liquidity and
profitability before it can satisfy itself that the going concern basis is
appropriate. Management should consider all available information about the
future which was obtained after the reporting date including measures taken by
governments and banks to provide relief to affected entities in their assessment
of going concern.
Disclosure
Given the unpredictability of the potential impact of the outbreak, there may
be material uncertainties that cast significant doubt on the entity’s ability to
operate under the going-concern basis. If the entity, nevertheless, prepares
the financial statements under the going-concern assumption, it is required
to disclose these material uncertainties in the financial statements in order
to make clear to readers that the going-concern assumption used by
management is subject to such material uncertainties.
How we see it
The degree of consideration required, the conclusion reached, and the
required level of disclosure will depend on the facts and circumstances in
each case, because not all entities will be affected in the same manner and
to the same extent. Significant judgement and continual updates to the
assessments up to the date of issuance of the financial statements may be
required given the evolving nature of the outbreak and the uncertainties
involved.

3. Financial instruments
While coronavirus continues to spread, the world is undergoing massive
adjustments reacting to this outbreak. Though the outcome is unpredictable,
and the conditions are still fluid and volatile, these adjustments (or measures)
may or may not have a direct impact on the accounting for financial
instruments. IFRS 9 Financial Instruments and IFRS 7 Financial instruments:
Disclosures deal with the accounting for financial instruments and the related
disclosures. Entities should exercise careful considerations for the proper
accounting. Additional accounting considerations for banks are also included in
this section.
Current vulnerability due to concentration and liquidity risks

Entities with concentrations of risk face greater risk of loss than other entities.
Paragraph 34(c) of IFRS 7 requires that concentration of risk should be
disclosed if not otherwise apparent from other risk disclosures provided.
Therefore, entities should consider including the following information:
• A description of how management determines concentrations of risk
• A description of the shared characteristic that identifies each concentration

(e.g., counterparty, geographical area, currency or market). For instance,
the shared characteristic may refer to geographical distribution of
counterparties by groups of countries, individual countries or regions
within countries and/or by industry
• The amount of the risk exposure associated with all financial instruments
sharing that characteristic
Entities that have identified concentrations of activities in areas or industries
affected by the outbreak (such as, e.g., the airline, hospitality and tourism
industries) that have not previously disclosed the concentration because they
did not believe that the entity was vulnerable to the risk of a near-term severe
impact, should now reconsider making such a disclosure.
Similarly, liquidity risk in
Similarly, liquidity risk in the current economic environment is increased.
the current economic
Therefore, it is expected that the disclosures required under IFRS 7 in this area
environment is increased.
will reflect any changes in the liquidity position as a result of the coronavirus
Therefore, it expected
outbreak. Entities should be mindful that this disclosure is consistent with their
that the disclosures assessment of the going concern assumption.
required under IFRS 7 in
this area will reflect any For entities that will prepare interim financial statements under IAS 34 Interim
changes in the liquidity Financial Reporting, if concentration and liquidity risks have significantly
position as result of the changed compared to their most recent annual financial report, they should
coronavirus outbreak. disclose the above information in their interim financial statements.
Asset classification and business model assessment: impact of

sales
A deterioration of the credit quality of the borrower or the issuer of a financial
asset, as a result of the coronavirus outbreak, may result in entities deciding
to dispose of investments classified as ‘hold-to-collect’ under IFRS 9. As a
reminder, if the sale is due to an increase in credit risk, this would be consistent
with the business model objective ‘hold to collect’, because the credit quality of
financial assets is relevant to the entity’s ability to collect contractual cash
flows. Selling a financial asset because it no longer meets the credit criteria
specified in the entity’s documented investment policy is an example of a sale
that would be consistent with the business model ‘hold to collect’.

Additionally, an increase in the frequency and value of sales in a particular
period is not necessarily inconsistent with an objective to hold financial assets
in order to collect contractual cash flows, if an entity can explain the reasons for
those sales and demonstrate why sales in future will be lower in frequency or
value. For example, if, due to a significant decrease in demand for the entity’s
products or services as a result of the pandemic (e.g., airline tickets or
hospitality events) the entity faces a temporary liquidity crisis, a sale of
financial assets classified as held-to-collect may not be inconsistent with such
business model.
As a reminder, reclassifications triggered by a change in the business model for

managing financial assets are expected to be very infrequent and will occur only
when an entity either begins or ceases to perform an activity that is significant
to its operations (for example, acquisition, disposal or termination of a business
line). A change in intention related to particular financial assets (even in
circumstances of significant changes in market conditions) is not a change in
business model.
Contract modifications
Affected entities may experience cash flow challenges as a result of disruptions
in their operations, higher operating costs or lost revenues. Such entities
may need to obtain additional financing, amend the terms of existing debt
agreements or obtain waivers if they no longer satisfy debt covenants. In such
a case, they will need to consider the guidance provided in IFRS 9 to determine
whether any changes to existing contractual arrangements represent a
substantial modification or potentially a contract extinguishment, which would
have accounting implications in each case.
For financial liabilities, in summary, an entity should derecognise the liability

if the cash flows are extinguished (i.e., when the obligation specified in the
contract is discharged, cancelled or expires) or if the terms of the instrument
have substantially changed.
IFRS 9 provides guidance on determining if a modification of a financial liability

is substantial, which includes a comparison of the cash flows before and after
the modification, discounted at the original effective interest rate (EIR),
commonly referred to as ‘the 10% test’. If the difference between these
discounted cash flows is more than 10%, the instrument is derecognised.
However, other qualitative factors could lead to derecognition irrespective
of the test (e.g., if a debt is restructured to include an embedded equity
instrument).
For financial assets, there is no explicit guidance in IFRS 9 for when

a modification should result in derecognition. Hence, we see entities
applying their own accounting policies, which are often based on qualitative
considerations and, in some cases, include the ‘10% test’. However, the IFRS
Interpretations Committee has indicated that applying the ‘10% test’ in isolation
would not always be appropriate, because of potential inconsistencies with the
impairment requirements in IFRS 9. We observe some preparers applying
different accounting policies depending on whether a modification is granted
due to financial difficulty of the borrower, with some concluding that such
circumstance would more rarely result in the derecognition of the financial
asset.

If, following the guidance above, a modified financial asset or liability does
not result in derecognition, the original EIR is retained and there is a catch-up
adjustment to profit or loss for the changes in expected cash flows discounted
at the original EIR. For floating rate instruments, a change in the market rate of
interest is accounted for prospectively. However, any other contractual change
(e.g., the spread applied above the interest rate) would also result in a catch-up
adjustment at the date of modification.
Hedge accounting
Business transactions may be postponed or cancelled, or they may occur in
significantly lower volumes than initially forecasted. If an entity has designated
a transaction such as the purchase or sale of goods or the expected issuance
of debt, as a hedged forecasted transaction in a cash flow hedge accounted for
under IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9,
the entity will need to consider whether the transaction is still a ‘highly probable
forecasted transaction’. This includes whether the volume or amounts involved
will be lower than forecasted or whether it is now no longer probable that the
forecasted transaction will occur.
That is, if the coronavirus outbreak affects the probability of hedged forecasted
transactions occurring during the time period designated at the inception of
a hedge, an entity will need to determine whether it can still apply hedge
accounting to the forecasted transaction or a proportion of it:
• If an entity determines that a forecasted transaction is no longer highly

probable, but still expected to occur, the entity must discontinue hedge
accounting prospectively.1 In this case, the accumulated gain or loss on
the hedging instrument that has been recognised in other comprehensive
income will remain recognised separately in equity until the forecasted
transaction occurs.
• If an entity determines that a forecasted transaction is no longer expected

to occur, in addition to discontinuing hedge accounting prospectively, it has
to immediately reclassify to profit or loss any accumulated gain or loss on
the hedging instrument that has been recognised in other comprehensive
income.
Impairment consideration of equity instruments classified as

available for sale by insurance companies
Although IFRS 9 replaced IAS 39 there are many insurance companies who still
apply IAS 39 as allowed by IFRS 4. This means that there are different
classification and measurement rules and different impairment rules than those
described above. For equity instruments classified as available for sale this
means that a significant or prolonged decline in fair value is objective evidence
of impairment and the negative amount recognised in other comprehensive
income for such equity instrument should be recycled to profit or loss. The
determination of what is 'significant or prolonged’ requires judgement. The
basis for what is considered ‘significant or prolonged’ must be applied
consistently from period to period. Insurance companies applying IAS 39 should
1 As a reminder, a reduction in the designated quantity of the hedged item because some cash
flows are no longer highly probable is not included in the IFRS 9 concept of ‘rebalancing’, which
otherwise allows adjusting the designated quantities of hedged items to allow keeping hedge
effectiveness.

consider the volatile financial markets and determine whether any available-
The measurement of ECL
for-sale equity instruments that they have are impaired.
should be based on an
unbiased, probability- Expected credit loss (ECL) assessment
weighted amount that is The occurrence of large scale business disruptions that potentially gives rise
determined by evaluating to liquidity issues for certain entities might also have consequential impacts on
a range of possible the credit quality of entities along the supply chain. This will also have knock on
outcomes and reflecting effects on retail portfolios (consumer and mortgage loans) as many businesses
time value of money will have to reduce staff numbers resulting in a sharp increase in numbers of
unemployed workers. The deterioration in credit quality of loan portfolios, but
also, e.g., of trade receivables, as a result of the outbreak will have a significant
impact on the ECL measurement. In responding to these challenges, certain
governments and central banks have introduced, or have directed or
encouraged commercial banks to introduce, various types of relief measures to
corporates, small and medium-sized enterprises or mortgage borrowers.
The measurement of ECL should be based on an unbiased, probability-weighted

amount that is determined by evaluating a range of possible outcomes and
reflecting time value of money. Entities should exercise judgement and their
best efforts to consider all reasonable and supportable information available
about past events, current conditions and forecasts of future economic
conditions, as described further in this publication. Given the unprecedented
circumstances, it will be critical that entities provide transparent disclosure of
the assumptions used to measure the ECL and provide sensitivity disclosures.
Re-segmentation of loan portfolios or groups or receivables
For the purpose of measuring ECLs and for determining whether significant
increase in credit risk (SICR) has occurred, an entity should group financial
instruments on the basis of shared credit risk characteristics and reasonable
and supportable information available on a portfolio basis.
The occurrence of the coronavirus outbreak might change the risk

characteristics of certain loans or receivables, because the respective
borrowers or customers might engage in businesses, or locate in areas,
which have become affected, or are more prone to be affected, by the
outbreak. Therefore, entities should consider (re)segmenting (sub)portfolios.
Individual and collective assessment of loans, receivables and contract assets
Due to the abnormal circumstances, it may take time for an entity to detect
actual changes in risk indicators for a specific counterparty. In order to
accelerate the reflection of such changes in credit quality not yet detected at an
individual level, it may be appropriate to adjust ratings and the probabilities of
default (PD) on a collective basis, considering risk characteristics such as the
industry or geographical location of the borrowers. For example, a supplier of
products or services to the airline industry would likely consider that the PD of
its customers has increased irrespective of specific events identified at the level
of individual counterparties. In estimating PD and ECL, entities should consider
the effect of any state aid plans to support customers through various
measures (e.g. refinancing measures or other forms of financial support,
including guarantees). Additionally, entities who are using multiple economic
scenarios when estimating ECL should consider updating these scenarios to

reflect the current change in circumstances (for further guidance, refer to the
section 'Additional considerations on ECL for banks’ of this document).
Extension of payment terms
If payment terms are extended in light of the current economic circumstances,

the terms and conditions of the extension will have to be assessed to determine
their impacts on the ECL estimate as well as any other accounting impacts. For
example, if the payment terms of a receivable are extended from 90 days to
180 days, this would likely not be considered a substantial modification of the
receivable. However, such extension is expected to result in an increase in PD,
which would, in turn, affect the measurement of ECL. For entities which do not
apply the simplified model, such extension may result in moving into stage 2,
depending on the extent and detailed terms of the payment extension.
Additional considerations on ECL for banks

Forbearance and other relief measures granted to borrowers
The accounting impact of forbearance and relief measures on ECL depends

on the details of the arrangements. Some relief measures (for example, an
extension of repayment term for 3 or 6 months) might be available country-
wide and automatically applied to all borrowers, regardless of their credit
standing. In that case, the deferral of repayment may not necessarily indicate
per se a significant increase in credit risk (SICR) as it is offered irrespectively of
the condition of each applicant, and an assessment of the borrower’s individual
circumstances is, therefore, needed to determine whether there has been a
SICR. However, if the measure is offered to everyone, but a borrower must
apply to benefit from it, then the fact that an application is made may be an
indication of SICR, as it suggests that the borrower needs the relief to comply
with its contractual obligations. Additionally, offering a relief measure of such
magnitude to all borrowers in an economic environment indicates a significant
adverse change in the economic environment of the borrower, which is one of
the indicators included in paragraph B5.5.17 of IFRS 9 that should be
considered for the assessment of SICR.
In another situation, if the relief measures are available only to those who
meet certain criteria, entities need to carefully assess whether such criteria
themselves might indicate a significant increase in credit risk for all affected
If payment terms are borrowers. For instance, a significant increase in credit risk is likely to have
extended in the light of occurred if a borrower applies for a relief measure which is available only
the current economic to corporates which have suspended operations or individuals who have
circumstances, the terms lost employment. Another example is if the relief, such as a deferral of loan
and conditions of the payments, is offered to all participants in certain industries (e.g., entities
extension will have to be engaging in the hospitality and travel businesses). This circumstance may
assessed to determine indicate that borrowers in that industry are exposed to a higher risk of business
their impacts on the ECL failure and thus a higher probability of default as a class. In combination with
other reasonable and supportable information, this is likely to result in the
estimate.
classification of the related loans and other exposures in this portfolio, or a
portion of them, into stage 2. The assessment should be made irrespective of
the fact that a concession is imposed by laws or regulations. Entities are also
expected to exercise judgement, in light of all facts and circumstances, to
determine if the respective loans are credit impaired and should therefore be
classified as stage 3.

The above discussion assumes that the forbearance measures allow a deferral
of principal payment(s), but interests would continue to accrue, whereas some
other measures might give rise to a loan restructuring, with a loss of principal or
interest by the lenders, which would likely result in a classification as stage 3,
rather than stage 2. The ECL allowance would reflect the lifetime ECL in both
cases, but with a probability of default of 100% for credit-impaired loans.
These measures may have an impact on risk management policies for

monitoring and reporting credit events as well as how banks manage client
relationships and late payments. Entities will need to assess how these changes
relate to their definition of default. In any case, they will need to consider that
historical information available to estimate ECL (in particular, loss given default)
may not be representative of the current circumstances arising from the
impacts of a pandemic outbreak.
Entities should monitor whether further guidance will be issued by standard

setters for dealing with the accounting and disclosure of relief measures under
these exceptional circumstances, as well as any additional disclosure guidance
provided by regulators or industry bodies.
Individual and collective assessment, multiple macroeconomic scenarios and

management overlays
Whether the impact of the outbreak is reflected in an individual assessment

(e.g., estimation of probability of default on an individual basis), factored into
the scenario analysis of future macroeconomic conditions on a collective
basis, or adjusted through management overlays, depends on the facts and
circumstances. In practice, entities may probably consider a combination of
these approaches.
Due to the abnormal circumstances, it may take time before banks detect
changes in risk indicators at a specific borrower level and are able to reassess
the affected exposures. In order to accelerate the reflection of such changes in
credit quality not yet detected at an individual level, it may be appropriate to
adjust ratings and the probabilities of default on a collective basis, considering
risk characteristics such as the industry or geographical location of the
borrowers. This would result in ECL adjustments as well as the identification
of SICR triggers for some exposures.
Many financial institutions consider multiple macroeconomic scenarios in the

assessment of ECL. The current situation is not likely to have been reflected
in any of the scenarios used for the ECL estimates at the prior year end and, as
such, will need to be updated . In addition to updating GDP expectations for the
various scenarios, a challenge will be to estimate how the impact of the
coronavirus outbreak will affect specific sectors, regions and borrowers. Also,
the relationship between GDP and other macroeconomic variables, such as
unemployment and interest rates, and sector-specific variables, such as the oil
prices is very likely to be different from what has been experienced in the past
and is currently used in economic forecasting models. The probability
weightings assigned to macroeconomic scenarios may also need to be revisited.
Additionally, it may be appropriate to consider the use of top-down

‘management overlays’, to embed in the ECL risks not yet fully captured
by the models. In estimating overlays, entities may consider historical

experience, including, for instance, the impact of similar events such as
the SARS outbreak in 2003. However, it appears clear that the widespread
nature and severity of the consequences of the coronavirus outbreak is not
directly comparable with any recent similar events. It may be appropriate for
this purpose, to plot several possible scenarios of what might happen over the
next six months and assign weightings to them, to ensure that any overlay
reflects the inherent uncertainty and non-linearity of potential outcomes.
In estimating the impact of coronavirus outbreak, entities should, nevertheless,

avoid double-counting of the effects of various assumptions applied in individual
assessment, macroeconomic scenarios and management overlays.
Impacts on EAD and LGD
The effect of credit enhancements on the loss given default (LGD) for both
individual and collective assessments will have to be taken into account,
considering the impact of the outbreak on the values of collaterals and
guarantees (e.g., shares or bonds prices, real-estate values and the credit
standing of any guarantor). Additionally, certain forms of government
assistance to compensate entities for losses suffered directly or indirectly
due to the coronavirus outbreak may be triggered in some jurisdictions.
In such a case, an analysis of the specific facts and circumstances may be
required to establish whether these initiatives should be accounted for as
guarantees integral to the loan, and therefore, affect the LGD estimate, or
should be recognised as a separate reimbursement asset or a government grant
under IAS 20 Accounting for Government Grants and Disclosure of Government
Assistance.
The estimate of the exposure at default (EAD) will also have to be updated,
especially for loan commitments and other types of credit facilities (e.g.,
revolving credit facilities such as overdrafts on current accounts and credit
cards), where a deterioration of the macroeconomic environment is generally
accompanied by an increase in the volumes and duration of drawdowns.
Disclosures
Given the inherent level of uncertainty and the sensitivity of judgements and
estimates, disclosures of the key assumptions used and judgements made in
estimating ECL are particularly important. This is especially the case as they
will have likely been materially updated compared to the key assumptions,
judgements and estimates applied in the latest annual financial statements.
These would include, for example, the values of the key macroeconomic inputs
used in the multiple economic scenario analysis and the probability weights of
these scenarios, as well as the assumptions used to determine how the different
challenges for specific sectors and regions have been taken into account and
the effect of any management overlays.
Additionally, entities should provide disclosures to allow users of financial

statements to understand the nature of any material reliefs offered to their
borrowers, including those enforced by governments, and how they have
assessed whether they constitute forbearance, whether they result in a
substantial modification of the contract, their effect on staging and the impact
on the overall ECL.

How we see it
The assessment of the impact of the coronavirus outbreak on ECL will
require significant judgement, especially as it is not directly comparable with
any recent similar events. Entities will have to update their macroeconomic
scenarios and consider the use of top-down ‘management overlays’ to
embed in the ECL risks not yet fully captured by their models. Given the level
of uncertainty and the sensitivity of judgements and estimates, disclosures
of the key assumptions used and judgements made in estimating ECL, as
well as the impact of any relief measures, is going to be critical.

4. Impairment assessment
An asset is impaired when an entity is not able to recover its carrying value,
either by using it or selling it. An entity estimates the recoverable amount of
the asset for impairment testing. Recoverable amount is the higher of the fair
value less costs of disposal (FVLCD) and the value in use (VIU). Value in use is
defined as the present value of the future cash flows expected to be derived
from an asset or cash generating unit. The calculation of an asset’s value in
use incorporates an estimate of expected future cash flows and expectations
about possible variations of such cash flows.
IAS 36 Impairment of Assets requires an entity to assess, at the end of each

reporting period, whether there is any impairment for an entity’s non-financial
assets. For goodwill and intangible assets with indefinite useful lives, the
standard requires an annual impairment test and when indicators of impairment
exist. For other classes of assets within the scope of the standard, an entity is
required to assess at each reporting date whether there are any indications of
impairment. The impairment test only has to be carried out if there are such
indications.
Events after the reporting period and information received after the reporting
period should be considered in the impairment indicator assessment only if
they provide additional evidence of conditions that existed at the end of the
reporting period. Similarly, the determination of the recoverable amounts of
an asset should only consider the information obtained after the reporting date
if such information relates to conditions existing as of the reporting period end.
Judgement of all facts and circumstances is required to make this assessment.
Existence of impairment indicators

As mentioned above, an entity is required to assess at the reporting date
whether there are any indicators of impairment. With the recent developments
of the outbreak, there are both external and internal sources of information,
such as the fall of stock and commodity prices, decrease of market interest
rates, manufacturing plant shutdowns, shop closures, reduced demand and
selling prices for goods and services, etc, indicating an asset may be impaired.
Measurement
When assessing impairment, entities are required to determine the recoverable
When estimating the amounts of the assets. FVLCD is the fair value as defined in IFRS 13 which has
recoverable amount based been explained in section 11 Fair value measurement in this publication. The
on the value in use, the estimation of the VIU involves estimating the future cash inflows and outflows
forecasted cash flows that will be derived from the use of the asset and from its ultimate disposal and
should reflect discounting the cash flows at an appropriate rate.
management’s best
In cases where the recoverable amount is estimated based on value in use,
estimate of the economic
the considerations on accounting estimates apply. The forecasted cash flows
conditions that will exist
should reflect management’s best estimate at the end of the reporting period
over the remaining useful
of the economic conditions that will exist over the remaining useful life of the
life of the asset. asset. With the current uncertain situation, significant challenges are expected
to prepare the forecast of or budgets for future cash flows. In these
circumstances, an expected cash-flow approach based on probability-weighted
scenarios may be more appropriate to reflect the current uncertainty than a
single best estimate when estimating value in use.

Since the remaining useful life for many assets, such as goodwill, is long term,
entities should consider not just the short term effects, but especially the long
term effects.
Disclosure
The more the current environment is uncertain, the more important it is for
the entity to provide detailed disclosure of the assumptions taken, the evidence
they are based on and the impact of a change in the key assumptions
(sensitivity analysis).
Given the inherent level of uncertainty and the sensitivity of judgements and
estimates, disclosures of the key assumptions used and judgements made in
estimating recoverable amount will be particularly important. This is especially
the case as they will have likely been materially updated compared to the key
assumptions, judgements and estimates applied in the latest annual financial
statements. These would include, for example, the values of the key
assumptions and the probability weights of multiple scenarios when using an
expected outcome approach
How we see it
As the crisis evolves and the conditions are unpredictable, at this stage,
management is required to exercise significant judgement to assert
reasonable assumptions which reflect the conditions existing at the
reporting date for impairment testing. We expect that in the current
situation, majority of these assumptions are subject to significant
uncertainties. As such, entities should consider providing detailed
disclosures on the assumptions and sensitivities.

5. Government grants
Requirements
IAS 20 Accounting for Government Grants and Disclosures of Government
Assistance applies to the accounting for, and the disclosure of, government
grants and to the disclosure of other forms of government assistance. The
distinction between government grants and other forms of government
assistance is important because the standard’s accounting requirements only
apply to the former. Government grants are transfers of resources to an entity
in return for past or future compliance with certain conditions relating to the
entity’s operating activities. The purpose of government grants, which may
be called subsidies, subventions or premiums, and other forms of government
assistance is often to encourage a private sector entity to take a course of
action that it would not normally have taken if the assistance had not been
provided.
SIC-10 Grants with no specific relation to operating activities addresses the

situation in some countries where government assistance is provided to
entities, but without any conditions specifically relating to their operating
activities, other than to operate in certain regions or industry sectors.
Scope
Recently many countries’ governments, agents or similar bodies have
Due to the severe impact introduced (or are expected to introduce) relevant measures to assist entities in
on many entities’ business response to the coronavirus. These measures include direct subsidies, tax
activities of the exemptions, tax reductions and credits, extended expiry period of unused tax
coronavirus outbreak, losses, reduction of public levies, rental reductions or deferrals and low-interest
many countries’ loans.
governments, agents
Whilst the benefit of a low-interest loan would be accounted for under IFRS 9
or similar bodies have and IAS 20, not all these measures are accounted for as government grants.
introduced (or are For example, a reduction of income tax is accounted for under
expected to introduce) IAS 12 Income Taxes; and rental reductions or deferrals may be accounted
relevant measures to for under IFRS 16 Leases. Accordingly, entities should analyse all facts and
assist entities. However, circumstances carefully to apply the appropriate relevant accounting standards.
not all of these measures We will focus on the accounting for government grants under IAS 20 in this
are considered as section and will have more detailed analysis in other sections to discuss the
government grants. accounting for those measures which are governed by accounting standards
Entities should evaluate other than IAS 20.
the measures carefully
Recognition in the statement of financial position
and determine which
Government grants should be recognised as an asset only when there is
standards should govern
reasonable assurance that the entity will comply with the conditions attaching
the respective accounting to them and the grants will be received. For example, when the government has
treatment. decided to give out special subsidies to the affected entities, government grants
can be recognised only when it is confirmed that an entity is eligible to receive
the subsidy and that any conditions attaching to these subsidies are met. In
cases where subsidies relating to coronavirus outbreak are given to entities
without any specified conditions, an asset can be recognised at the time when
it is reasonably certain that the grants will be received. Nevertheless, it is
important to note that the receipt of a grant does not of itself provide

conclusive evidence that the conditions attaching to the grant have been, or will
be, fulfilled.
Recognition in the income statement

Government grants must be recognised in profit or loss on a systematic basis
over the periods in which the entity recognises as expenses the related costs
for which the grants are intended to compensate. In cases where a grant relates
to expenses or losses already incurred, or for the purpose of giving immediate
financial support to the entity with no future related costs expected to be
incurred, the grant should be recognised in income when it becomes receivable.
Government may decide to stimulate economic activity by providing subsidies

on investments by entities. If these subsidies are related to investment in
assets which will be used by the entities over a longer term, the grant should
be recognised in profit or loss over the useful lives of those related acquired
assets.
Measurement
Direct cash assistance or subsidies will be measured at their fair value.
However, government grants can take other forms. For example, when a
government grant takes the form of a low-interest government loan, the loan
should be recognised and measured in accordance with IFRS 9 (at its fair
value) and the difference between this initial carrying value of the loan and
the proceeds received is treated as a government grant. A forgivable loan
from government, the repayment of which will be waived under certain
prescribed conditions, is initially accounted for as a financial liability under
IFRS 9 and would only be treated as a government grant when there is
reasonable assurance that the entity will meet the terms for forgiveness.
When government grants take the form of a transfer of non-monetary assets,
such as plant and equipment, for the use of the entity, entities may apply
an accounting policy choice to account for such grants at fair value of the
non-monetary assets or at a nominal amount
Presentation
Grants that are related to assets should be presented in the statement of
financial position either by setting up the grant as deferred income, which is
presented as income over the useful life of the asset; or by deducting the grant
in arriving at the carrying amount of the asset, in which case, the benefit is
presented in profit or loss as a reduction to depreciation.
Grants related to income should be presented either as a credit in the income

statement, either separately or under a general heading such as ‘other income’,
or as a deduction in reporting the related expense.

Disclosure
IAS 20 requires entities to disclose the following information:
• The accounting policy adopted for government grants, including methods

of presentation adopted in the financial statements
• The nature and extent of government grants recognised in the financial

statements and an indication of other forms of government assistance
from which the entity has directly benefited
• Unfulfilled conditions and other contingencies attaching to government

assistance that has been recognised
How we see it
Whether IAS 20 should be applied depends on the facts and circumstances
of the specific measures implemented by the government, including
government agencies and similar bodies. Entities need to analyse all facts
and circumstances carefully to determine the appropriate accounting
treatment.

6. Income taxes
Requirements
A range of economic stimulus packages have been announced by governments
Recent government
around the world. Recent government responses to the coronavirus outbreak
responses to the
have included income tax concessions and other rebates. Entities need to
coronavirus outbreak have
consider the impacts of these legislative changes on their accounting for
included income tax income taxes. IAS 12 Income Taxes requires current tax liabilities and assets for
concessions and other current and prior periods to be measured at the amount expected to be paid to
rebates. Entities need to (or recovered from) the taxation authority, using the tax rates and laws that
consider the impacts of were enacted, or substantively enacted, by the end of the reporting period.
these legislative changes Deferred tax assets and liabilities must be measured at the tax rates expected
on their accounting for to apply to the period when the asset is realised or the liability is settled, also
income taxes. using the tax rates and laws that were enacted, or substantively enacted, by
the end of the reporting period.
IFRIC 23 Uncertainty over Income Tax Treatments requires an entity to consider

whether it is probable that a taxation authority will accept an uncertain tax
treatment. If the entity concludes that the position is not probable of being
accepted, the effect of the uncertainty needs to be reflected in the entity’s
accounting for income taxes.
Substantively enacted or not

In some jurisdictions, announcements of tax rates (and tax laws) by the
government have the substantive effect of actual enactment. In such
circumstances, tax assets and liabilities are measured using the announced
tax rate. However, this is not always the case and an entity would need
to consider when the tax concessions (e.g., reduced tax rates) become
substantively enacted in their jurisdiction, for example, by considering the
legislative process and consensus in its jurisdiction for when a law becomes
substantively enacted.
Recognition
Conditions attached to tax relief
Some governments might structure their tax relief so it applies only to entities
who have been impacted by the coronavirus outbreak based on certain
qualifying criteria, for example, only entities in certain sectors, or entities
of a certain size (e.g., by revenue), or that have suffered a certain amount of
economic impact. This may give rise to uncertainty and the need for entities to
make judgements and estimates when assessing their income tax position, for
example, whether for that taxation period, the entity will fall below the revenue
threshold in order to receive the tax concession. Entities will need to determine
whether it is probable that the taxation authority will accept their position. If
not, IFRIC 23 requires entities to assess whether to recognise any additional
liability for uncertain tax positions. The same requirement applies to recognition
of uncertain tax assets.

Tax credits
Tax relief may come in the form of tax credits. Tax credits are not defined
within IFRS, and entities need to exercise judgement in determining how the
receipt of a tax credit should be accounted for, as a reduction in tax liability
under IAS 12, or the receipt of a government grant under IAS 20, when it is
structured as a cash payment or has other indicators of a grant such as non-tax
related conditions being attached to it (for example, cash spend on approved
research and development related activities). A tax credit to be treated in
accordance with IAS 12 will have indicators such as reducing income taxes
payable (being forfeited or deferred if there are insufficient taxes payable) and
having few, if any, non-tax conditions attached to it. A tax credit to be treated
in accordance with IAS 20 will often be directly settled in cash in the case of
insufficient taxes payable and have non-tax conditions attached. In any case, all
facts and circumstances relating to the specific relief need to be considered in
assessing the substance of the arrangement.
Measurement
Current and deferred tax balances
Many governments announced tax stimulus packages in early 2020. This would
not impact the measurement of current tax balances and deferred tax balances
as at 31 December 2019. Some tax concessions such as tax rate reductions
could relate to prior years. Because IAS 12 states that these balances are to
be measured in accordance with the rates and laws that had already been
substantively enacted as at reporting date, any impacts relating to prior
taxation years would only be recorded in the financial period in which the
amending legislation was substantively enacted.
Entities with reporting periods ended or ending in 2020 need to consider if

the tax concessions announced in early 2020 are substantively enacted prior
to reporting period end. As noted earlier, entities need to consider what is
generally understood as ‘substantively enacted’ in their own jurisdiction. If
determined to be substantively enacted by reporting date, then current tax
balances and deferred tax balances would be measured based on the tax
incentives including reduced tax rates under the stimulus package.
In cases where the tax concessions are staggered over several years, such as
incremental tax rate reductions, the expected timing of the reversal of deferred
tax balances will also need to be assessed.
Carry forward of tax losses
In assessing the probability of the future realisation of carry forward tax losses,
entities will need to consider whether the adverse economic conditions arising
as a result of the coronavirus outbreak existed as at reporting date. If so, the
entity will need to consider the deterioration of the economic outlook in its
forecasts of taxable profits and reversals of taxable temporary differences. If
not, the event is non-adjusting, but the entity should consider disclosure around
the nature of the subsequent event.

Disclosure
In addition to subsequent event disclosures, the following will also be relevant
for entities impacted by the coronavirus outbreak: an explanation of changes
in the applicable tax rate compared to the prior period; the amount and expiry
date of any carry forward tax losses; and the nature of evidence supporting
the recognition of deferred tax assets when the entity has suffered a loss in
the current period. The entity should also consider disclosure of the nature
of any significant judgements or estimates made when determining the
appropriate accounting for the matters described above. Such judgements
may include whether the tax laws were substantively enacted as of reporting
date, and the determination of the accounting for income tax credits.
How we see it
Entities need to determine whether changes to tax rates and laws as part
of government responses to the coronavirus outbreak, were substantively
enacted as of the reporting date. The characteristics of any tax relief or
rebates received by the government need to be carefully assessed in order
to determine whether they should be accounted for as a reduction to the
income tax expense, or the receipt of a government grant. Uncertainties
relating to income taxes arising from these new government measures will
require entities to consider whether they should recognise and measure
current and/or deferred tax assets or liabilities at a different amount.

7. Liabilities from insurance contracts
IFRS 4 Insurance Contracts requires an entity issuing insurance contracts to
account for its rights and obligations from the insurance contracts it issues.
The current coronavirus outbreak situation could affect an entity’s liabilities for
issued insurance contracts for a range of product lines. For example, entities
issuing life or health products may be faced with claims caused by the impact
of the outbreak on policyholders’ health status. Entities may also be affected
by claims where cover is provided for events driven by the disruption caused
by the outbreak, for example, business interruption insurance, event
cancellation insurance, travel insurance and credit insurance. However, since
coronavirus is a new disease, contractual terms may not be clear on whether
policyholders can claim against the insurer. Also, entities need to consider
any interpretations, directives or rulings by local authorities (e.g., government,
regulator or health agency) that could impact the obligations under the contract
for the entity.
Measurement
Entities issuing insurance contracts will therefore need to assess the impact of
Entities issuing insurance the coronavirus, or the disruption caused by it, on their insurance liabilities
contracts will therefore based on their specific accounting policies. This includes the effect on the
need to assess the impact liability adequacy testing of the insurance liabilities. This assessment would
the coronavirus, or the need to consider factors including, but not limited to, the effect on reported
disruption caused by claims, the effect on incurred but not (enough) reported claims, the impact of
the outbreak, to their these effects on the assumptions for estimating expected future claims, and
insurance liabilities the impact on the entity’s claims handling expenses. Where the entity reinsured
based on their specific risk from its insurance contracts, it should also consider the associated
recovery through its asset from reinsurance contracts held.2 In determining
accounting policies,
these effects, the entity should consider not only the terms and conditions of its
including the effect on the
insurance contracts, but also the implications of any interpretations, directives
liability adequacy testing
or rulings by local authorities for those terms and conditions (see above). Where
of the insurance liabilities. an entity’s accounting policies for the measurement of its insurance liabilities
may also involve the use of current estimates of market variables, for example,
interest rates and equity prices, the entity should reflect the impact of market
developments on these variables in its measurement.
Entities should also assess whether the coronavirus gives rise to events
after the reporting period and determine the implications for the financial
statements. As the pandemic continues to evolve, situations and conditions
are changing rapidly, entities which are going to report their interim or annual
financial statements with a reporting date in early 2020 (e.g. 31 March 2020)
would face significant challenges when considering the events after the
reporting date. Insurers are required to perform a careful analysis of the nature
and impact of these subsequent events to determine if those events and
conditions are adjusting or non-adjusting in accordance with IAS 10 Events after
the Reporting Period (see section 13). Also refer to the discussion on
impairment consideration of equity instruments classified as available for sale
by insurance companies in section 3.
2
Reimbursement rights of policyholders, other than the situation of a reinsurance contract held
by a cedant, is covered in section 9, Insurance recoveries, of this publication.

Disclosure
Entities will need to disclose the assumptions used to make their estimates,
highlight the uncertainties and explain the sensitivities of the measurement of
the insurance liabilities if alternative assumptions were used, explaining how
these are influenced by incorporating consequential effects of the coronavirus.
Other disclosure items, like insurance risk concentrations, claims developments,
credit risk, market risk and capital may be affected as well.
Even though the full extent of the impact on insurance entities may not be
clear and a number of uncertainties around the impact may remain, disclosure
explaining these uncertainties and possible effects will be needed. Such
disclosure would need to include an explanation of events that happened after
the reporting date, for any events that relate to conditions that existed at the
end of the reporting period as well as for any events that relate to conditions
that arose after the reporting period.
How we see it
The coronavirus outbreak will affect insurance entities as they deal with the
effect of events on the insurance cover they provide, ranging from coverage
related to changes in health status of policyholders due to the wide spread
of the disease, to coverage for events related to disruption caused by the
pandemic. However, this impact is expected to be much broader than the
effect on the accounting for insurance liabilities as the current situation
raises various challenges for insurers. For example, entities would have
to identify and monitor new risks, and determine the magnitude of their
impact on the insurance business. Entities would also have to deal with
the impact of the developments on financial markets on their asset liability
management strategies.
Given the rapid developments and extent of measures taken to contain the
effects of the coronavirus outbreak, insurance entities should anticipate
uncertainty over the impact on their insurance liabilities in the coming
period, and will need to monitor developments closely and determine
whether these developments have an impact on the accounting for their
insurance liabilities.

8. Leases
Payments received by the lessee
When payments are received by a lessee, it is necessary to evaluate whether
IFRS 16 applies to such payments. In some jurisdictions, local authorities
have implemented policies to provide subsidies to lessees and others in order
to support the local economy and these payments are accounted for under
IAS 20. Refer to section 5 for a discussion on the related accounting
consideration.
When IFRS 16 applies to such payments made by a lessor, the lessee and lessor
need to evaluate if there is a lease modification by considering the original
terms and conditions of the lease. For example, a lessor may make a payment
to a lessee of retail space in an airport when there are significant flight
cancellations and such payment is not contemplated within the terms of the
contract. In assessing whether the lease is modified, entities need to carefully
evaluate terms of their contracts, including any force majeure clauses, which
may, in specified circumstances, suspend some of their obligations or provide
additional rights in the lease.
Figure 1: Assessing payments received (or receivable) by a lessee

Under IFRS 16, a lease modification is a change in the scope of a lease, or the
A lease modification is consideration for a lease, that was not part of the original terms and conditions
a change in the scope of a of the lease. For a lease modification that is not accounted for as a separate
lease, or the consideration lease, at the effective date of the lease modification, a lessee is required to
for a lease, that was not allocate the consideration in the modified contract, determine the lease term of
part of the original terms the modified lease and remeasure the lease liability by discounting the revised
and conditions of the lease payments using a revised discount rate. If the modification decreases the
lease. scope of the lease, the lessee accounts for the remeasurement of the lease
liability by decreasing the carrying amount of the right-of-use asset to reflect
the partial or full termination of the lease and recognises in profit or loss any
gain or loss relating to the partial or full termination. For all other modifications,
the lessee makes a corresponding adjustment to the right-of-use asset.
How we see it
The modification of the lease requires the remeasurement of the lease
liability using a revised discount rate. Given that the interest rate implicit in
the lease is generally not readily determinable by the lessee, it is necessary
for the lessee to determine a revised incremental borrowing rate. The
coronavirus outbreak has exacerbated market volatility and central banks in
many jurisdictions are cutting interest rates. Assessing a revised
incremental borrowing rate may also require judgement in these
circumstances.

9. Insurance recoveries
Requirements
In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent
A reimbursement is
Assets, where some or all of the expenditure required to settle a provision is
recognised when, and only expected to be reimbursed by another party, the reimbursement is recognised
when, it is virtually certain when, and only when, it is virtually certain that reimbursement will be received
that reimbursement will be if the entity settles the obligation. The amount of the provision is not reduced
received if the entity by any expected reimbursement. Instead, the reimbursement is treated as a
settles the obligation. separate asset and the amount recognised for the reimbursement asset is not
permitted to exceed the amount of the provision.
A contingent asset is defined as a possible asset that arises from past

events and whose existence will be confirmed only by the occurrence or non‑
occurrence of one or more uncertain future events not wholly within the control
of the entity. An entity does not recognise a contingent asset because this
may result in the recognition of income that may never be realised. However,
when the realisation of income is virtually certain, then the related asset is not a
contingent asset and its recognition is appropriate. A contingent asset is subject
to disclosure where an inflow of economic benefits is probable. An entity needs
to continually assess its contingent assets to ensure that developments are
appropriately reflected in the financial statements. If an inflow of economic
benefits has become probable (when, previously, it was possible but not
probable), an entity is required to disclose the contingent asset. If it has become
virtually certain that an inflow of economic benefits will arise, the asset and the
related income are recognised in the financial statements of the period in which
the change occurs.
Recognition
An entity may experience a loss related to the coronavirus outbreak. For
example, as a result of the shutdown of its production facilities as required
by the local government, an entity continues to incur expenses for staff costs,
rent and property taxes. Entities often enter into insurance policies to reduce
or mitigate the risk of loss arising from business interruption or other events.
The accounting for insurance claims will differ based on a variety of factors,
including the nature of the claim, the amount of proceeds (or anticipated
proceeds) and the timing of the loss and corresponding insurance recovery.
In addition, any accounting for insurance proceeds will be affected by the
evaluation of coverage for that specific type of loss in a given situation, as
well as an analysis of the ability of an insurer to satisfy a claim.
In some instances, it may be clear that the recognition threshold for the
reimbursement is met when the reimbursable expense is incurred. In other
instances, a careful analysis of the terms and conditions of an entity’s business
interruption policies is required due to the wide variety of terms relating to
the nature and level of losses covered. Some policies covering lost revenue
or operating margins that typically are measured over a longer term require
comparisons with similar periods in prior years. In such cases, no compensation
would be available if revenue or operating margins recover during the
measurement period that is set under the terms of the insurance policy. For
example, a claim under a policy with a quarterly measurement period would not

be valid if a retailer were to lose an entire month’s revenue, but recover that
revenue before the end of the quarter.
Decisions about the recognition (and measurement) of losses are made

independently of those relating to the recognition of any compensation
that might be receivable. It is not appropriate to take potential proceeds into
account when accounting for the losses.
IAS 37 prohibits the recognition of contingent assets. In such a situation,

the recognition of the insurance recovery will only be appropriate when its
realisation is virtually certain, in which case, the insurance recovery is no longer
a contingent asset. ‘Virtually certain’ is not defined in IAS 37, but it is certainly
a much higher hurdle than ‘probable’ and, indeed, more challenging than
the term ‘significantly more likely than probable’ in Appendix A of IFRS 5 Non-
current assets held for sale and discontinued operations.3 It is reasonable to
interpret ‘virtually certain’ to be as close to 100% as to make any remaining
uncertainty insignificant. In practice, this means that each case must be
assessed on its own merits. In the context of a potential insurance recovery,
determining that there is a valid insurance policy for the incident and a claim
will be settled by the insurer, may require evidence confirming that the insurer
will be covering the claim.
If a previously unlikely receipt becomes probable, but it is still a contingent

asset, it will only be disclosed. This assessment extends to the analysis of
information available after the end of the reporting period and before the
date of approval of the financial statements. In applying IAS 10, an asset is
recognised only if the information about the insurance recovery, that becomes
available in the subsequent period, provides evidence of conditions that existed
at the end of the reporting period and its realisation was virtually certain at
that time. For example, the later receipt by the entity of confirmation from
the insurer that its insurance policy does cover this type of loss would provide
evidence of cover as at the end of the reporting period.
Measurement
Once it is established that it is virtually certain that the entity will be
compensated for at least some of the consequences of the coronavirus
outbreak under a valid insurance policy, any uncertainty as to the amount
receivable should be reflected in the measurement of the claim.
Presentation
‘Netting off’ is not allowed in the statement of financial position, with any
insurance reimbursement asset classified separately from any provision.
However, the expense relating to a provision can be shown in the income
statement net of any corresponding reimbursement.
In accordance with IAS 7 Statement of Cash Flows, cash flows from operating
activities are described as cash flows from the principal revenue-producing
activities of the entity and other activities that are not investing or financing
activities. If the insurance proceeds are related to business interruption,
the corresponding cash flows are classified as operating cash flows.
3 According to paragraph 23 of IAS 37, an event is regarded as probable if the event is more
likely than not to occur.

How we see it
The terms and conditions of an insurance policy are often complex. In the
context of a potential insurance recovery, determining that there is a valid
insurance policy for the incident and a claim will be settled by the insurer,
may require evidence confirming that the insurer will be covering the claim.
Once it is established that it is virtually certain that the entity will be

compensated for at least some of the consequences of the coronavirus
outbreak under a valid insurance policy, any uncertainty as to the amount
receivable should be reflected in the measurement of the claim.

10. Onerous contract provisions
Requirements
An onerous contract is a contract in which the unavoidable costs of meeting
If an entity has a contract the obligations under the contract exceed the economic benefits expected to
that is onerous, IAS 37 be received under it. The unavoidable costs under a contract reflect the least
requires the entity to net cost of exiting from the contract, which is the lower of the cost of fulfilling
recognise and measure it and any compensation or penalties arising from failure to fulfil it. If an entity
the present obligation has a contract that is onerous, IAS 37 requires the entity to recognise and
under the contract as measure the present obligation under the contract as a provision. Before a
a provision. separate provision for an onerous contract is established, an entity recognises
any impairment loss that has occurred on assets dedicated to that contract.
See section 5 for further details on impairment considerations.
Recognition
One significant impact of the coronavirus outbreak is the disruption to the
global supply chain. For example, when a manufacturing entity has contracts
to sell goods at a fixed price and, because of the shutdown of its manufacturing
facilities, as required by the local government, it cannot deliver the goods
itself without procuring them from a third party at a significantly higher cost,
the provision for the onerous contract will reflect the lower of the penalty
for terminating the contract or the present value of the net cost of fulfilling
the contract (i.e., the excess of the cost to procure the goods over the
consideration to be received). Contracts should be reviewed to determine if
there are any special terms that may relieve an entity of its obligations (e.g.,
force majeure). Contracts that can be cancelled without paying compensation
to the other party do not become onerous as there is no obligation.
How we see it
In assessing the unavoidable costs of meeting the obligations under
a contract at the reporting date, entities, especially those with non-
standardised contract terms, need to carefully identify and quantify
any compensation or penalties arising from failure to fulfil it.

11. Fair value measurement
IFRS 13 Fair Value Measurement specifies that fair value measurement (FVM)
is a measurement date specific exit price estimate based on assumptions
(including those about risks) that market participants would make under current
market conditions. That is, at the measurement date, what assumptions would
market participants have made using all available information, including
information that may be obtained through due diligence efforts that are usual
and customary. Unobservable inputs should be used to measure fair value to
the extent that relevant observable inputs are not available. However, the fair
value measurement objective remains the same, i.e., an exit price at the
measurement date from the perspective of a market participant.
Following the above requirements, the objective of FVM is to convey the fair
value of the asset or liability that reflects conditions as of the measurement
date and not a future date. Although events and/or transactions occurring
after the measurement date may provide insight into the assumptions used
in estimating fair value as of the measurement date (only those that are
unobservable), they are only adjusted for in FVM to the extent they provide
additional evidence of conditions that existed at the measurement date and
these conditions were known, or knowable, by market participants.
IFRS 13 also requires disclosure of information that helps users of financial

statements assess the valuation techniques and inputs used to develop
recurring fair values at the reporting date and, therefore, by implication
the impact these FVMs will have on reported financial performance.
Measurement
Under IFRS 13, each FVM is categorised within the three levels in the FVM
hierarchy based on the observability of inputs used. In Level 1 (unadjusted
quoted prices in an active market for an identical asset or liability that an entity
can access) and Level 2 (where all the inputs are observable for the asset or
liability, either directly or indirectly, but are not in Level 1), the first quarter
of 2020 has seen increasing market volatility. On the basis that these are
still quoted prices in an active market or are still observable, the increase in
volatility should not change the manner in which fair value is measured at
the measurement date.
In Level 3 (where (an) unobservable input(s) is(are) significant to the

The impact on fair value measurement as a whole), incorporating such increase in volatility into
measurement will depend valuation models may pose challenges to reporting entities. When making
on the evaluation of how critical assessments and judgements for measuring fair value, the entity should
the outbreak and actions consider what conditions, and corresponding assumptions, were known or
taken by certain knowable to market participants.
governments at the While volatility in the financial markets may suggest that the prices are
reporting date would aberrations and do not reflect fair value, it would not be appropriate for
have impacted market an entity to disregard market prices at the measurement date, unless those
participants’ valuation prices are from transactions that are not orderly. The concept of an orderly
assumptions at that date. transaction is intended to distinguish a fair value measurement from the price in
a distressed sale or forced liquidation. The intent is to convey the current value
of the asset or liability at the measurement date, not its potential value at a
future date.

The impact on FVM would depend on the evaluation of how the outbreak and
any actions taken by certain governments at the reporting date would have
impacted market participants’ valuation assumptions at that date. Accordingly,
entities need to evaluate how this continuously changing information up to
the reporting date potentially impacts related valuation inputs that were known,
or knowable, by market participants by means of usual and customary due
diligence performed up to that date.
The information available to the market at the reporting date may be relevant
in making this evaluation. This would include any corroborative or contrary
evidence, such as the timing and trajectory of observable market price
movements of related assets in the relevant markets, as well as information
from other than usual sources of market data up to the reporting date.
Disclosure
To meet the disclosure objectives of IFRS 13, entities will need to consider
making related disclosures that could reasonably be expected to influence
decisions that the primary users of general purpose financial statements
would make on the basis of the financial statements. Depending on the facts
and circumstances of each case, disclosure may be needed to enable users
to understand whether or not the outbreak has been considered for the purpose
of FVM. Users should understand the basis for selecting the assumptions and
inputs that were used in the FVM and the related sensitivities.
Given the outbreak is evolving, entities are also reminded to consider the
disclosure requirements from other standards that are relevant to FVM,
such as IAS 10 Events after the Reporting Period on subsequent events and
developments when asset values are significantly impacted subsequent to
the reporting date. Furthermore, paragraph 125 of IAS 1 requires information
regarding the assumptions an entity makes about the future and other sources
of estimation uncertainty at the end of the reporting period, where such
assumptions have a significant risk of resulting in a material adjustment to
the carrying amounts of assets and liabilities within the next financial year.
How we see it
The objective of fair value measurement is to convey the current value of
the asset or liability that reflects conditions as of the measurement date and
not a future date. Accordingly, entities should consider what information
about the outbreak was known, or knowable, to market participants at the
reporting date in order to measure the fair value at the measurement date.

12. Revenue recognition
The coronavirus outbreak could affect revenue estimates in ongoing customer
contracts in the scope of IFRS 15 Revenue from Contracts with Customers. This
is because when a contract with a customer includes variable consideration
(e.g., discounts, refunds, price concessions, performance bonuses and
penalties), an entity is generally required to estimate, at contract inception, the
amount of consideration to which it will be entitled in exchange for transferring
promised goods or services. The amount of variable consideration an entity
can include in the transaction price is constrained to the amount for which it is
highly probable that a significant reversal of cumulative revenue recognised will
not occur when the uncertainties related to the variability are resolved.
An entity that makes such an estimate is also required to update the estimate
throughout the term of the contract to depict conditions that exist at each
reporting date. This will involve updating the estimate of variable consideration
(including any amounts that are constrained) to reflect an entity’s revised
expectations about the amount of consideration to which it expects to be
entitled, considering uncertainties that are resolved or new information about
uncertainties related to the coronavirus outbreak. Estimation of variable
consideration and the constraint may require entities to exercise significant
judgement and make additional disclosures. For example, an entity is required
to disclose information about the methods, inputs and assumptions used for
estimating variable consideration and assessing whether an estimate of variable
consideration is constrained. Entities should also consider the requirements to
disclose the judgements and changes in judgements that significantly affect the
determination of the amount and timing of revenue.
Uncertainties related to the coronavirus outbreak could also prompt entities

to modify contracts with customers or reassess whether it is probable that
the entity will collect the consideration to which it is entitled. If both parties
to a contract agree to amend the scope or price (or both) of a contract, an
entity should account for the modification under the contract modification
requirements in paragraphs 18-21 of IFRS 15. Significant judgement is required
to determine when an expected partial payment indicates that: (1) there is an
implied price concession to be accounted for as variable consideration; (2) there
is an impairment loss (see section 3 on Individual and collective assessment of
loans, receivables and contract assets); or (3) the arrangement lacks sufficient
substance to be considered a contract under the standard.
In addition to the effect on ongoing contracts, entities will need to consider how
Significant judgement the uncertainties with the coronavirus outbreak affect future contracts with
may be needed to customers. This could require careful consideration of, for example,
determine the effect of collectability, price concessions and stand-alone selling prices. Entities may also
uncertainties related to need to consider how evolutions in their customary business practices affect
the coronavirus on both their assessments under the revenue model. This could, for example, have an
effect on an entity’s determination that a valid contract exists, its identification
ongoing and future
of performance obligations and its assessment of whether it has a right to
revenue contracts.
payment for performance completed to date.
Refer to our publication Applying IFRS: A closer look at IFRS 15, the revenue
recognition standard, for more information.

How we see it
Entities may need to use significant judgement to determine the effect of
uncertainties related to the coronavirus outbreak on its revenue accounting,
e.g., estimates of variable consideration (including the constraint) and
provide appropriate disclosures. Importantly, the effects are unlikely to
be limited to variable consideration. Decisions made in response to the
outbreak (e.g., modifying contracts, transacting with customers during
collectability concerns, revising pricing) may also have an effect on the
accounting and disclosures for ongoing and future contracts.

13. Events after the reporting period
Events after the reporting period are those events, favourable and
The distinction between unfavourable, that occur between the end of the reporting period and the
an adjusting and date when the financial statements are authorised for issue. IAS 10 makes
non-adjusting event is a distinction between adjusting and non-adjusting events after the reporting
based on whether the period. The principal issues are how to determine which events after the
event provides evidence reporting period are to be reflected in the financial statements as adjusting
of conditions that existed events and, for non-adjusting events, what additional disclosures to provide.
at the end of the reporting
Recognition
period.
The coronavirus outbreak occurred at a time close to the end of 2019. In late
2019, a cluster of cases displaying the symptoms of a “pneumonia of unknown
cause” were identified in Wuhan, the capital of China’s Hubei province. On
31 December 2019, China alerted the World Health Organisation (WHO) of
this new virus. On 30 January 2020, the International Health Regulations
Emergency Committee of the WHO declared the outbreak a “Public Health
Emergency of International Concern”. Since then, more cases have been
diagnosed, also in other countries. Measures were taken and policies imposed
by China and other countries. On 11 March 2020, the WHO announced that the
coronavirus outbreak can be characterised as a pandemic.
Many governments have introduced various measures to combat the outbreak,

including travel restrictions, quarantines, closure of business and other venues
and lockdown of certain area. These measures have affected the global supply
chain as well as demand for goods and services. At the same time, fiscal and
monetary policies are being relaxed to sustain the economy. These government
responses and their corresponding effects are still evolving.
For entities that are affected, or expect to be impacted by the outbreak or by

the measures taken, the critical judgement and evaluation that management
need to make is whether and, if so, what event in this series of events provides
evidence of the condition that existed at the end of the reporting period for the
entity’s activities or their assets and liabilities. When making this judgement, the
entity takes into consideration all available information about the nature and
the timeline of the outbreak and measures taken.
Disclosure
If management concludes an event is a non-adjusting event, but the impact
of it is material, the entity is required to disclose the nature of the event
and an estimate of its financial effect. For example, it may have to describe
qualitatively and quantitively how the market volatility subsequent to year-end
has affected its equity investments and governmental measures imposed on
sporting and social activities and border controls have affected or may affect
its operations, etc. If an estimate cannot be made, then the entity is required to
disclose that fact.

How we see it
Entities need to ensure effective processes are in place to identify
and disclose material events after the reporting period which could
reasonably be expected to influence decisions that the primary users of
general purpose financial statements make on the basis of those financial
statements.

14. Other financial statement disclosure
requirements
In addition to the disclosure requirements discussed in the above sections,
IAS 1 requires disclosure of information about the assumptions concerning
the future, and other major sources of estimation uncertainty at the end of
the reporting period, that have a significant risk of resulting in a material
adjustment to the carrying amounts of assets and liabilities, such as non-
current assets subject to impairment, within the next financial year (with
the exception of assets and liabilities measured at fair value based on recently
observed market prices). The disclosures are required to be presented in a
manner that helps users of financial statements to understand the judgements
that management makes about the future and about other key sources of
estimation uncertainty. The nature and extent of the information provided
will vary according to the nature of the assumption and other circumstances.
Examples of the types of disclosures that an entity is required to make include:
• The nature of the assumption or other estimation uncertainty
• The sensitivity of carrying amounts to the methods, assumptions and

estimates underlying their calculation, including the reasons for the
sensitivity
• The expected resolution of an uncertainty and the range of reasonably

possible outcomes within the next financial year in respect of the carrying
amounts of the assets and liabilities affected
• An explanation of changes made to past assumptions concerning those

assets and liabilities, if the uncertainty remains unresolved
When it is impracticable to disclose the extent of the possible effects of an
assumption or other source of estimation uncertainty at the end of a reporting
period, the entity discloses that it is reasonably possible, based on existing
knowledge, that outcomes within the next financial year that are different from
assumptions used could require a material adjustment to the carrying amount
of the asset or liability affected.
An entity is also required to disclose the judgements, apart from those involving
estimations, that management has made in the process of applying the entity’s
accounting policies and that have the most significant effect on the amounts
recognised in the financial statements.
Disclosure (for year end reporting purposes)

The financial statement disclosure requirements for entities directly and/or
indirectly affected by the outbreak will vary depending on the magnitude of
the financial impact and the availability of information. Where such a decline
in value is determined to be non-adjusting in accordance with the guidance
described in the earlier sections, the entity does not adjust the carrying
amounts, but instead, disclose such a fact and its financial effect if it can be
reasonably estimated.
Because the outbreak may also result in obligations or uncertainties that an

entity may not have previously recognised or disclosed, an entity also needs to
consider whether to disclose additional information in the financial statements
to explain the impact of the outbreak on areas that might include provisions and

contingent assets/liabilities, in addition to asset impairments after the reporting
period as discussed above.
For entities which have their next quarterly reporting timeline close to the
The occurrence of the issuance of their annual financial statements, it is possible that quantitative
outbreak has certainly financial information about the impact of the outbreak may become available
added additional risks by the time they issue the annual financial statements. In that case, they should
that the carrying amounts consider providing such quantitative disclosures in their annual financial
of assets and liabilities statements, if the effect is material.
may require material
In relation to the assumptions and estimation uncertainty associated with
adjustments within the the measurement of various assets and liabilities in the financial statements,
next financial year. the occurrence of the outbreak has certainly added additional risks that the
carrying amounts of assets and liabilities may require material adjustments
within the next financial year. Therefore, entities should carefully consider
whether additional disclosures are necessary in order to help users of financial
statements understand the judgement applied in the financial statements. Such
disclosure may include, for a financial statement item with a carrying amount
that is more volatile in response to the outbreak, a sensitivity of carrying
amounts to the methods, assumptions and estimates underlying
their calculation.
How we see it
Entities need to consider the magnitude of the disruptions caused by
the outbreak to their businesses and adequately disclose the information
about those assets and liabilities that are subject to significant estimation
uncertainty, in order to provide users with a better understanding of
the financial impact.
Disclosure (for interim reporting purposes)

In accordance with IAS 34, an entity is required to include in its interim financial
report an explanation of events and transactions that are significant to an
understanding of the changes in financial position and performance of the
entity since the end of the last annual reporting period. Information disclosed
in relation to those events and transactions should also update the relevant
information presented in the most recent annual financial report. IAS 34
includes a number of required disclosures as well as a non-exhaustive list of
events and transactions for which disclosures would be required if they are
significant. For example, where significant, an entity needs to disclose changes
in the business or economic circumstances that affect the fair value of the
entity’s financial assets and financial liabilities, whether those assets or
liabilities are recognised at fair value or amortised cost. In addition, an entity
is also required to disclose any loan default or breach of a loan agreement
that has not been remedied on or before the end of the reporting period and
transfers between levels of the fair value hierarchy used in measuring the fair
value of financial instruments where significant. The standard presumes a user
of an entity’s interim financial report will have access to the most recent annual
financial report of that entity. Therefore, it is unnecessary for the notes to an
interim financial report to provide relatively insignificant updates to the
information that was reported in the notes in the most recent annual financial
report. However, as most entities are only recently impacted by the outbreak
which is rapidly evolving, they may not have included much relevant

information in their last annual financial reports and thus may need to include
more comprehensive disclosure on, especially, where relevant, the topics
discussed in this publication for interim financial reporting purposes.
While other standards specify disclosures required in a complete set of financial

statements, if an entity’s interim financial report includes only condensed
financial statements as described in IAS 34, then the disclosures required by
those other standards are not mandatory. However, if disclosure is considered
to be necessary in the context of an interim report, those other standards
provide guidance on the appropriate disclosures for many of these items. In
light of these requirements and depending on the entity-specific facts and
circumstances, higher-level disclosures may be sufficient in condensed interim
financial statements.

15. Other accounting estimates
Apart from the above, the following are some of the other key accounting
estimates required to be made by management under IFRS. These estimates
generally include management’s assumptions about the future recoverability
of an asset:
• Net realisable value of inventories under IAS 2 Inventories
• Remaining useful life and residual value of property, plant and equipment,
intangible assets and right-of-use assets under IAS 16 Property, Plant and
Equipment, and IAS 38 Intangible Assets and IFRS 16, respectively.

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Applying IFRS

1 March 2020 IFRS accounting considerations of the coronavirus outbreak

This publication, therefore, provides a reminder of the existing accounting

• Liabilities from insurance contracts

• Onerous contract provisions

• Fair value measurement

• Events after the reporting period

• Other financial statement disclosure requirements

• Other accounting estimates

March 2020 IFRS accounting considerations of the coronavirus outbreak 2

3 March 2020 IFRS accounting considerations of the coronavirus outbreak

Current vulnerability due to concentration and liquidity risks

• A description of how management determines concentrations of risk

• A description of the shared characteristic that identifies each concentration

Asset classification and business model assessment: impact of

March 2020 IFRS accounting considerations of the coronavirus outbreak 4

As a reminder, reclassifications triggered by a change in the business model for

For financial liabilities, in summary, an entity should derecognise the liability

IFRS 9 provides guidance on determining if a modification of a financial liability

For financial assets, there is no explicit guidance in IFRS 9 for when

5 March 2020 IFRS accounting considerations of the coronavirus outbreak

• If an entity determines that a forecasted transaction is no longer highly

• If an entity determines that a forecasted transaction is no longer expected

Impairment consideration of equity instruments classified as

March 2020 IFRS accounting considerations of the coronavirus outbreak 6

The measurement of ECL should be based on an unbiased, probability-weighted

Re-segmentation of loan portfolios or groups or receivables

The occurrence of the coronavirus outbreak might change the risk

Individual and collective assessment of loans, receivables and contract assets

7 March 2020 IFRS accounting considerations of the coronavirus outbreak

Extension of payment terms

If payment terms are extended in light of the current economic circumstances,

Additional considerations on ECL for banks

The accounting impact of forbearance and relief measures on ECL depends

March 2020 IFRS accounting considerations of the coronavirus outbreak 8

These measures may have an impact on risk management policies for

Entities should monitor whether further guidance will be issued by standard

Individual and collective assessment, multiple macroeconomic scenarios and

Whether the impact of the outbreak is reflected in an individual assessment

Many financial institutions consider multiple macroeconomic scenarios in the

Additionally, it may be appropriate to consider the use of top-down

9 March 2020 IFRS accounting considerations of the coronavirus outbreak

In estimating the impact of coronavirus outbreak, entities should, nevertheless,

Impacts on EAD and LGD

Additionally, entities should provide disclosures to allow users of financial

March 2020 IFRS accounting considerations of the coronavirus outbreak 10

11 March 2020 IFRS accounting considerations of the coronavirus outbreak

IAS 36 Impairment of Assets requires an entity to assess, at the end of each

Existence of impairment indicators

March 2020 IFRS accounting considerations of the coronavirus outbreak 12

13 March 2020 IFRS accounting considerations of the coronavirus outbreak

SIC-10 Grants with no specific relation to operating activities addresses the

March 2020 IFRS accounting considerations of the coronavirus outbreak 14

Recognition in the income statement

Government may decide to stimulate economic activity by providing subsidies

Grants related to income should be presented either as a credit in the income

15 March 2020 IFRS accounting considerations of the coronavirus outbreak

• The accounting policy adopted for government grants, including methods

• The nature and extent of government grants recognised in the financial

• Unfulfilled conditions and other contingencies attaching to government

March 2020 IFRS accounting considerations of the coronavirus outbreak 16

IFRIC 23 Uncertainty over Income Tax Treatments requires an entity to consider

Substantively enacted or not